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Tuesday, June 15, 2010

Branded Fuels: Future Tense?

Priyanka Pandit | IIM S

By the time this article gets published, an Empowered Group of Ministers (EGoM) headed by the Finance Minister has probably decided whether the petrol and diesel prices are to be freed from government control or not. Decontrol would effectively increase rates by over Rs 6 a litre and cut down on the loss of Rs 46,051 that the three public OMCs (Oil Marketing Companies) incurred in 2009-2010.

But the OMCs are not rejoicing. The government subsidizes them to compensate for below-market prices, and this in effect eliminates private competition. The decontrol would mean losing the edge over competitors; the ones forced to shut down as well as the ones eyeing the market from the foreign shores.

Fuel Branding in India

Branded fuels were introduced in the early 2000s as a means to cash in on the growing number and variety of vehicles on the Indian roads. The premium product seemed to be the only way to make a little profit for the loss-making OMCs. The initial years showed positive results too, but then the crude prices hit the sky in late 2008 and the special tax on the branded fuel also kicked in. The price differential between the branded and the regular fuel rose to over Rs. 4/litre.

The average Indian passenger car owner began to think of RoI on his purchase of branded fuels and the sales have been dropping since then. Are these specialty fuels going to be another branded product buried in the Valley of Death?

Analysis of Present Offerings

Firstly, the similar positioning statements of all the brands, as mentioned above in the chart, make it obvious that the average consumer of branded fuel is confused about the identity of the brand he is using.

Second major concern is the quality assurance aspect of the product. Although all the OMCs have special initiatives at their major retail outlets for the same, there is almost zero assurance to the buyer that the premium paid for the branded fuels have any returns. A rare inquisitive consumer may find the names of the companies from where the additives are sourced, at best. But there is no validation of the claims about better mileage or engine life. It creates the impression that there is no major difference between the regular and premium fuel. This is one of the prime reasons for the drop in usage after trials.

The target for these fuels seems to be, predictably, the urban youth who prefer branded products. IOCL has however, introduced it at some of its KisanSevaKendras in rural areas with positive feedback. A deeper segmentation even in the branded fuel users can be done, as shown by Hi-Speed which focuses on Green Technology.

Branding a commodity is a very tough proposition and once a company sets out on the road, it has to keep investing to build on the brand else it is sure to lose consumers mindspace. Of all the brands reviewed here, only Speed has had a continued association with a well-known brand ambassador and stands out with a regularly updated microsite.

With the Web 2.0 being driven by social networking, it is disheartening to see no activity on this front by any of the brands. Not only could they be important touchpoints for connecting with the customer, they might as well be used for inventory management and faster complaint redressal.

Considering the fact that most of the buying in this category is need-based and not impulse, the question whether the ‘Branded Fuels’ are anything more than commodities must be answered by the OMCs honestly.

Gearing up

International petroleum companies like Shell and even Indian ones like Reliance and Essar are waiting for a more deregulated market to re-enter. Before the private players had to exit the last time, they had resulted in an erosion of about 10 per cent in the market share of the public sector companies. If the OMCs want to play Round Two, they would have to pull up their act together.

The three things which need to be looked at with maximum priority are:

•Believing in their brands and investing to build on the existing identity

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Launched in April 2009, Markathon is the monthly Marketing magazine released by the Marketing Club of IIM Shillong and was the brainchild of Asit Jain, Saurav Bagchi, Dilpreet Singh, Ritul Singh, Pranab Talukdar & Soumyasanta Roy. The current office bearers are Ashok A, Kamalpreet Saluja, Pallavi, Prateek Gaurav, Shashank Singh Tomar, Sushree Tripathy, Swikruti Panda and Vaibhav Annam. This is the first monthly B-School marketing magazine which is circulated in over 50 B-Schools in India and abroad and has a reader base of over 5000. Made available in a free-to-distribute electronic format, it includes articles which cover a plethora of marketing topics and also has an ad designing competition. Markathon aims to deconstruct marketing jargons to make the subject more accessible to students. Interviews of corporate and academic stalwarts is a regular feature. The issues are characterized by rich images, detailed styling and the cover pages are especially remarkable and lend identity to the whole issue.